HANFA Opinion on Outsourcing Business Processes of a Leasing Company When Legal Services Are Provided and Representation Is Handled by a Law Firm

1 HANFA OPINION ON OUTSOURCING BUSINESS PROCESSES OF A LEASING COMPANY WHEN LEGAL SERVICES ARE PROVIDED AND REPRESENTATION IS HANDLED BY A LAW FIRM I INTRODUCTION The Croatian Financial Services Supervisory Agency (hereinafter: HANFA) received a request for the issuance of a legal opinion (hereinafter: Request) from a leasing company (hereinafter: Requester), in which HANFA's opinion was requested regarding the application of the provisions of the Regulation on Outsourcing of Business Processes of Leasing Companies (Official Gazette no. 66/14; hereinafter: Regulation). II DESCRIPTION OF THE REQUEST FOR OPINION Specifically, the Requester is interested in whether the "legal assistance and representation services" performed by a law firm (for the Requester and at its request) constitute an outsourced activity within the meaning of the provisions of the Regulation. In this regard, the Request specifies the activities performed by the law firm, including in the part of providing legal assistance and representation to the Requester (providing legal advice and written legal opinions, drafting and verifying documents and internal acts, drafting submissions, representation, defense of responsible persons, etc.). III HANFA OPINION Article 71, paragraph 1 of the Leasing Act (Official Gazette no. 141/13) stipulates that a leasing company may outsource certain of its business processes by transferring them to another person based on a written contract. Outsourcing of business processes is the contractual entrustment of the performance of actions, services, or activities to another person that would otherwise be performed solely by the leasing company. Furthermore, Article 2, paragraph 3 of the Regulation defines the outsourcing of business processes as the contractual entrustment of the performance of actions, services, or activities of the leasing company to service providers, which the leasing company would otherwise perform solely. Moreover, Article 2, paragraph 4 of the Regulation defines actions, services, or activities that a leasing company would otherwise perform solely as those actions, activities, or services that enable the performance of the registered activity and those that support the performance thereof (e.g., use of information technology, risk management, internal control functions, accounting). Following the cited provisions, it clearly follows that the aforementioned articles of the Regulation and the Leasing Act apply exclusively to business, business processes, and activities that a leasing company would otherwise have to perform solely, meaning that the relevant articles apply to those businesses where an error or omission in the performance of those businesses, business processes, or activities would significantly impair the leasing company's ability to continuously meet the conditions and obligations from its operating license, obligations under the Leasing Act, maintain the financial stability of the leasing company, or the continuity of providing leasing services.

2 HANFA considers that by providing legal assistance and representation to the Requester, in the manner and within the scope of powers specified in the Request, actions, services, or activities that a leasing company would otherwise have to perform solely are not performed, i.e., that in such a manner, businesses are not performed where an error or omission in the performance of those businesses, business processes, or activities would significantly impair the leasing company's ability to continuously meet the conditions and obligations. However, HANFA notes that when assessing whether the engagement of external experts (including lawyers) for the performance of a specific task or service (providing legal assistance) constitutes outsourcing of a business process within the meaning of Article 71 of the Leasing Act, the leasing company should be guided by criteria regarding how the performance of those tasks affects the fulfillment of conditions from the operating license, financial stability, continuity of the leasing company's business, and the leasing company's ability to meet all conditions prescribed by the Leasing Act.